If a situation arises where raising finance isn’t possible, your business is no longer viable and you have personally guaranteed money to creditors, one option available is bankruptcy. Bankruptcy proceedings can be instigated by any of your creditors who are owed £5,000 or more, or you can apply to the court to have yourself declared bankrupt.

What is Bankruptcy?

Bankruptcy is an insolvency procedure in which an individual is no longer required to repay their debts. A bankruptcy petition can be made either by an individual, or one of his creditors, and the court will make a bankruptcy order on the presentation of this petition.

In most situations, this is the worst thing in financial terms that can happen to an individual as:

• It involves selling any valuable assets – potentially including your home
• Your credit rating will be seriously damaged
• This will make borrowing either difficult, or expensive.

For a period (usually 12 months) the following restrictions may apply which stop you from:

• acting as a director of a limited company.
• borrowing more than £500 without disclosing your bankruptcy.
• create, manage or promote a company without the court’s permission.
• managing a business in a name different to that under which you already trade, without disclosing the bankruptcy.

Despite this, depending on your circumstances Bankruptcy may actually be the most advantageous resolution to your financial situation.

Some advantages of Bankruptcy include;

• Filing for bankruptcy will trigger the automatic stay, preventing creditors from taking action to collect their debts, including calling you, suing you, or instructing bailiffs to recover your possessions.
• You may be able to discharge your obligation to repay any of your debts.
• By using the bankruptcy exemptions, some debtors can go through the bankruptcy process without losing any of their property.
• While a bankruptcy filing will remain on your record for 7-10 years, because many debts can be discharged, many debtors begin improving their credit rating after filing for bankruptcy.